19 October 2023
Dear clients,
Escalating tensions in the Middle East and discontent over rising bond yields have sent markets into risk-aversion mode as investors interpret the Federal Reserve's interest rate announcements.
MSCI fell 1.5%, the biggest one-day drop since 21 September, while gold remained near a two-month peak.
The bond market sell-off continued into Asian hours, with the benchmark 10-year Treasury yield at 4.949%, the highest since mid-2007.
This impacted regional bond markets in Asia, with Japanese government bond yields hitting a ten-year high.
Meanwhile, oil prices fell on Thursday after OPEC showed no signs of supporting Iran's call for an oil embargo against Israel and the Biden administration generally eased sanctions against Venezuela, allowing global oil flows to increase. Oil prices rose 2% in the previous session.
Futures are indicating that European stock markets should open significantly lower as risk fleeing is in place and the European economic calendar is empty.
Against this backdrop, Fed Chairman Jerome Powell will take centre stage later in the day (16:00 GMT), and markets fear he may take a hawkish tone after a string of US data showing the economy is growing.
Policymakers have hinted that they may have to hold off on raising interest rates for another couple of months as they await clarity on mixed signals, including both strong economic data and signs of progress against stubbornly high inflation.
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